6 Operating Lease ExampleAcme Limo has a client who will sign a lease for for 7 years, with lease payments due at the start of each year. The following table shows the NPV of the limo if Acme purchases the new limo for $75,000 and leases it our for 7 years.

7 Operating Lease Example - contAcme Limo has a client who will sign a lease for for 7 years, with lease payments due at the start of each year. The following table shows the NPV of the limo if Acme purchases the new limo for $75,000 and leases it our for 7 years.

8 Financial Leases ExampleGreymare Bus Lines is considering a lease. Your operating manager wants to buy a new bus for $100,000. The bus has an 8 year life. The Bus Saleswoman says she will lease Greymare the bus for 8 years at $16,900 per year, but Greymare assumes all operating and maintenance costs.Should Greymare Buy or Lease the bus?

9 Financial LeasesExample - contGreymare Bus Lines is considering a lease. Your operating manager wants to buy a new bus for $100,000. The bus has an 8 year life. The Bus Saleswoman says she will lease Greymare the bus for 8 years at $16,900 per year, but Greymare assumes all operating and maintenance costs.Should Greymare Buy or Lease the bus?Cash flow consequences of the lease contract to Greymare

10 Financial LeasesExample - contGreymare Bus Lines is considering a lease. Your operating manager wants to buy a new bus for $100,000. The bus has an 8 year life. The Bus Saleswoman says she will lease Greymare the bus for 8 years at $16,900 per year, but Greymare assumes all operating and maintenance costs.Should Greymare Buy or Lease the bus?Cash flow consequences of the lease contract to Greymare :Greymare saves the $100,000 cost of the busLoss of depreciation benefit of owning the bus$16,900 lease payment is due at the start of each yearLease payments are tax deductible

12 Financial Leases Example - contGreymare Bus Lines can borrow at 10%, thus the value of the lease should be discounted at 6.5% or .10 x (1-.35). The result will tell us if Greymare should lease or buy the bus.

13 Financial Leases Example - contGreymare Bus Lines can borrow at 10%, thus the value of the lease should be discounted at 6.5% or .10 x (1-.35). The result will tell us if Greymare should lease or buy the bus.